Me and Alfred (rehabber) started to form a relationship in December right before I got this deal locked up.

The costs of repairs, leasing, turnover, eviction, taxes etc especially for a long distance owner is so much more than the "pro forma". 

Do they have to form a corporation here in the states so I can tax their C-corp?

But if you're completely green, it may be a better idea to save $400 on a cut-rate inspector, and instead pay for 2-3 separate but detailed opinions form a licensed foundation expert, roofing contractor and perhaps a plumber or an electrician.

In some cases it may be more appropriate to form a general partnership for the deal.

Make an income/expense pro forma with conservative assumptions for all of the concerns you listed above.

If my friend and I form a legal entity (LLC), will we be able to get a loan from the bank in that entities name?

Problem with a lot of the out of area investors was they did not have the benefit of buying form a team member on the ground and by the time they paid Aussie marketing company US wholesaler and retailer etc etc. they were already paying 100k or so 2 years ago for the same house you and I bought for 50k..

All the forms are written by MA lawyers for MA landlords so you know your backside is covered. 

Could you just form a Solo-Member LLC that's a holding company and has the 401K attached and if you ever need to have a business that needs to hire employees make sure it's a separate LLC set up with the holding LLC being the sole-member of the separate LLC?